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The Brain in Thain

There is little doubt that Thain believes this. But there is also little doubt that one day, possibly soon, a computer will be able to perform all the functions specialists and brokers perform today—even for illiquid stocks, even when the market is convulsing. “You could write an algorithm that could play at chess, too,” Thain counters when I bring up this scenario. “But the very best people still beat the computers.” True enough. On the other hand, if you were faced with a choice between hiring several hundred people to play chess and buying a single software package that could play almost as well, you’d probably opt for the software. The software doesn’t need health benefits. Or lunch. It’s hard to believe that Thain, the consummate engineer, isn’t heading in this direction.

At times, the praise you hear for Thain on the floor has all the passion of a POW reading a prepared statement. The hybrid system “allows me to represent my customer better,” says Doreen Mogavero, who runs a small brokerage firm with a presence on the floor. “Any time you give the customer more choice, the product you give them is better.” Brokers complain that Thain is pricing them out of existence at the same time he whispers sweet nothings in their ears. Specialists gripe that Thain has cut their commissions, and that promised revenue-sharing arrangements don’t make them whole. Last year, Thain filed papers with the SEC seeking a moratorium on the market makers who do business at the exchange. (Market makers are similar to specialists—they move in and out of stocks to help ensure liquidity.) There may have been legitimate reasons for each move—the market makers can be costly to regulate, for example. But his tactics have raised eyebrows. “There was no due process,” says one floor critic. “We were completely blindsided.” One gets the impression that Thain, in his sober engineering way, has identified what he believes to be the optimal approach to these conflicts: Appear soothing and gracious to your interlocutors—then quietly undermine their cause.

It doesn’t always work out that way. Earlier this year, Thain created a minor uproar when he declined to renew the contract for the floor barber, a 43-year NYSE employee named Gerardo Gentilella. Gentilella had received an annual $24,000 subsidy from the exchange, so it was entirely Thain’s prerogative to let him go. But Gentilella had asked to stick around through the end of the year and work for tips. The brokers and specialists thought Thain owed it to him. Eventually, the backlash grew so strong that CNBC’s Maria Bartiromo, the floor doyenne, called up Thain and asked him to reconsider. Thain said he’d look into it, but, come June 30, Gentilella was packing his bags. “How many people do you know who have no remorse? No remorse and no empathy?” asks one floor veteran.

In the end, of course, it’s hard to blame Thain for doing what any other CEO of a public company would be expected to do—certainly what people on the floor of the NYSE would expect a CEO to do—which is to wring inefficiencies out of his organization to boost his bottom line. The day I visited McCooey on the floor, he was marveling at the recent bull market in NYX stock. The share price was up $8.50 that day alone, to nearly $105. Just three weeks earlier, it had been at $75. McCooey speculated that the rally could have something to do with the Euronext deal. A rival bidder called Deutsche Borse had withdrawn its (stingier) offer for Euronext, and as a final deal-sweetening concession, Thain had agreed to split the new board evenly between the two companies. The merger now looked like a fait accompli.

But there seemed to be something else going on. Earlier in the week, Barron’s had published a provocative story called “Death of the Floor.” The cover of the issue featured a skeleton holding a CNBC microphone while reporting from the exchange. When I’d asked the preternaturally optimistic Sax about it, he began to moan. “The cover story says it all … It’s already too late to save the floor.” McCooey was more even-keeled, but the idea that the market was rewarding NYX stock on the expectation that there would soon be no floor seemed to wear on him, too. “The picture was more offensive than the article,” he told me. “But that’s Barron’s. They’re always negative.” On the balcony behind him, Thain was just then ushering in the prime minister of Iceland and the head of a company called Novator, one of the richest men in Europe. They were about to ring the closing bell.